CIBIL score is a numeric summary of one’s credit history and it helps one get their loan applications evaluated and approved. Banks and other financial institutions rely on CIBIL scores to evaluate the potential risk posed by lending money to consumers and to mitigate losses. CIBIL score plays a very important role in India’s financial system and helps consumers secure credit quicker and also help loan providers manage their business efficiently.
How are CIBIL scores calculated?
CIBIL scores are calculated based on various factors such as one’s payment history, number and type of loan accounts, length of one’s credit history, outstanding debt and many other factors. Once the CIBIL score is calculated, it is sent to banks and financial institutions for evaluation. Each bank or credit institution has its own benchmark that constitutes as a good score. It differs across banks.
Factors that don’t affect your credit score
CIBIL scores are calculated based on many factors but there are some factors that don’t make a difference to your CIBIL score.
CIBIL scores are very important when it comes to availing credit, especially loan approvals. The banks check your CIBIL score or credit score through CIBIL. A CIBIL score helps determine your creditworthiness which in turn will help you avail loans faster and easier.
When a borrower applies for a loan or credit card at a bank or a financial institution, the lender checks the credit or CIBIL score first to determine if the applicant is eligible to avail the loan. The lender will not consider or reject an application if the CIBIL score doesn’t meet their expectations or if its too low. But if the credit score is high, the lender will consider the application and move on to evaluate other factors before approving the application.
Your CIBIL score acts as the first impression for the lender, the higher the score, the better chances of the loan/credit card being approved.
How does my CIBIL score matter?
Your CIBIL score is one of the main factors that determine your eligibility to avail a loan or a credit card. CIBIL scores can affect your financial journey depending on how good or bad it is.
Listed below are the aspects influenced by your CIBIL score:
Credit approvals
Your approval of credit by a bank or financial institution is mainly based on your CIBIL score. Lenders need to know if you are a reliable candidate before granting you credit and CIBIL score helps in determining your eligibility to avail credit. A bad CIBIL score will lessen your chances of getting credit without any hassles. A good CIBIL score is a must to avail a credit card, home loan, mortgage loan, personal loan, car loan or any other types of loan.
It is still possible to avail credit without a CIBIL score but this will result in borrowing from unreliable lenders with high interest rates.
Interest rates
A good CIBIL score will help you get the best interest rates and terms. Higher the credit score, better the interest rate. A good CIBIL score will help you save money.
Approval for housing
A good credit score will ensure that you get approved for a new housing loan or rent. Your credit score will act as a deciding factor here and hence, its important to have a good credit score.
Other factors
CIBIL scores not only affect your ability to get favourable loans and good interest rates but it will also help in getting approved for a new cell phone plan or help you get lesser insurance premiums.
Example:
Consider two people, A and B, A has a CIBIL score of 650 and B has a CIBIL score of 750. They both take a home loan of Rs.4 lakhs for 6 years. A will end up paying Rs.7 lakhs more in interest than B. This is because B will get better interest rates than A since B has a good CIBIL score.
How are CIBIL scores calculated?
CIBIL scores are calculated based on various factors such as one’s payment history, number and type of loan accounts, length of one’s credit history, outstanding debt and many other factors. Once the CIBIL score is calculated, it is sent to banks and financial institutions for evaluation. Each bank or credit institution has its own benchmark that constitutes as a good score. It differs across banks.
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| What is a CIBIL score How important is your CIBIL Score |
CIBIL scores are calculated based on many factors but there are some factors that don’t make a difference to your CIBIL score.
- Savings accounts
- Education
- Income
- Gender
- Race/ Ethnicity
CIBIL scores are very important when it comes to availing credit, especially loan approvals. The banks check your CIBIL score or credit score through CIBIL. A CIBIL score helps determine your creditworthiness which in turn will help you avail loans faster and easier.
When a borrower applies for a loan or credit card at a bank or a financial institution, the lender checks the credit or CIBIL score first to determine if the applicant is eligible to avail the loan. The lender will not consider or reject an application if the CIBIL score doesn’t meet their expectations or if its too low. But if the credit score is high, the lender will consider the application and move on to evaluate other factors before approving the application.
Your CIBIL score acts as the first impression for the lender, the higher the score, the better chances of the loan/credit card being approved.
How does my CIBIL score matter?
Your CIBIL score is one of the main factors that determine your eligibility to avail a loan or a credit card. CIBIL scores can affect your financial journey depending on how good or bad it is.
Listed below are the aspects influenced by your CIBIL score:
Credit approvals
Your approval of credit by a bank or financial institution is mainly based on your CIBIL score. Lenders need to know if you are a reliable candidate before granting you credit and CIBIL score helps in determining your eligibility to avail credit. A bad CIBIL score will lessen your chances of getting credit without any hassles. A good CIBIL score is a must to avail a credit card, home loan, mortgage loan, personal loan, car loan or any other types of loan.
It is still possible to avail credit without a CIBIL score but this will result in borrowing from unreliable lenders with high interest rates.
Interest rates
A good CIBIL score will help you get the best interest rates and terms. Higher the credit score, better the interest rate. A good CIBIL score will help you save money.
Approval for housing
A good credit score will ensure that you get approved for a new housing loan or rent. Your credit score will act as a deciding factor here and hence, its important to have a good credit score.
Other factors
CIBIL scores not only affect your ability to get favourable loans and good interest rates but it will also help in getting approved for a new cell phone plan or help you get lesser insurance premiums.
Example:
Consider two people, A and B, A has a CIBIL score of 650 and B has a CIBIL score of 750. They both take a home loan of Rs.4 lakhs for 6 years. A will end up paying Rs.7 lakhs more in interest than B. This is because B will get better interest rates than A since B has a good CIBIL score.
- Advantages of a good CIBIL score:
- Ability to get a line of credit easily.
- Quick approval for mortgages.
- Low interest rate credit cards.
- No security deposit on cell phones.
- More negotiating power.
- Get approved for higher limits.
- Easy approval for rented/leased houses and apartments.
- Low interest rate home loans and car loans.